Katapult Holdings, Inc.

Ladies and gentlemen, good morning and welcome to the Catapult Holdings Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Cull, Head of Investor Relations at Catapult Holdings. Please go ahead.

Welcome to Catapult's second quarter 2023 conference call. On the call with me today are Orlando Zayas, Chief Executive Officer, Nancy Walsh, Chief Financial Officer, and Derek Medlin, Chief Operating Officer. For your reference, we have posted materials from today's call on the investor relations section of the Catapult website, which can be found at ir.catapultholding.com. I would like to remind everyone that this call will contain forward-looking statements based on our current assumptions, expectations, and beliefs regarding our future financial performance and results, which are all subject to significant risks and uncertainties. These forward-looking statements should be considered in conjunction with cautionary statements contained in the earnings release and on Form 10-Q for the quarter ended June 30, 2023, as well as the subsequent periodic and current reports the company files with the SEC. These statements reflect management's current beliefs, assumptions, and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. The information contained in this call is accurate only as of the date discussed. Except as required by law, the company undertakes no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise. During today's discussion, the company will provide certain financial information that constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures should not be considered replacement for and should be read together with our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is included with today's earnings release and is available on the investor relations section of the company's website. With that, I will turn the call over to Orlando.

Thank you, Jennifer, and welcome to Catapult. We're happy to have you here to lead our industrial relations program, and I know you're looking forward to getting to know our shareholders. Thanks also to everyone joining us today. We're excited to share our progress and hear your feedback, so I'll jump right in. During the second quarter, our team worked hard and continued to lay the foundation for profitable growth. This focus, coupled with ongoing demand for lease-to-own products for underserved, non-prime consumers, who are often left behind by traditional financing options, led to another quarter of strong financial and operating results. In short, we had another good quarter. Year over year, gross originations were up 18% to $54.7 million, and revenue grew 2.9% to $54.6 million. It's worth noting that gross originations have grown year over year, for three consecutive quarters, and we are grateful for our team's hard work that is allowing us to deliver these strong results. With the strength of our top-line results and lower cash operating expenses of $9.6 million, our adjusted EBITDA improved to a loss of $280,000. As I've mentioned before, more than 30% of American consumers do not have access to traditional financing options. Remarkably, approximately 37% of the adult U.S. population would not be able to cover a $400 emergency expense without assistance. And based on recent reports, we believe this number will continue to grow. With these dynamics, Caterpillar continues to have a compelling opportunity to put our innovative needs-to-own platform to work for these consumers. Our mission here at Catapult is to help this underserved community gain access to the durable goods they need when they need them, while simultaneously helping our merchant partners expand their reach to this growing base of engaged and loyal customers. It's a win-win for both our key stakeholders. Our dedication to doing the right thing for all of our stakeholders has not only led to an improving financial trajectory, but also allows us to sustain industry-leading net promoter scores from our customers. As of the end of the second quarter, our net promoter score was a strong 64. Before I get to the update on our progress against our strategic pillars, I want to reiterate our growth strategy. We have two basic goals. To grow our merchant base and to grow our customer base. And to do both profitably and simultaneously. Let me explain how we're evolving our approach to achieve these goals. To date, we have been primarily focused on building our merchant base. But we are also well positioned to expand our customer base. For example, we are growing consumer engagement with our mobile app featuring Catapult Pay, providing what we believe are undeniable benefits to our customers and enhancing and deploying our technology capabilities across the business. This is creating more avenues for growth outside of just direct integrations with merchants. On one side, we are growing our business by being a unique channel solution for our merchant partners that helps expand their businesses. This, in turn, has allowed us to expand the categories of durable goods that consumers can shop for. They can now use catapult lease-to-own products to shop for just about any durable good you can imagine. On the other side of our business, we're driving demand by building consumer awareness, consideration, and engagement through our expanded mobile capabilities and features and targeted marketing efforts. We feel confident that we're creating a flywheel that unlocks both greater value for our merchant partners and enhanced experience for our loyal customers, and that this will be the engine that powers our ability to achieve these three strategic pillars. So now let me walk you through the progress we've made on each pillar during the second quarter. Our first pillar is all about our merchants. Quite simply, we need to deepen our existing merchant relationships and enter into new ones with merchants that offer even more products consumers want. To do this, we are executing in three key areas. Extending current direct integration merchant relationships, adding new merchants to our direct integration pipeline, and leveraging catapult pay to include more merchants. Let's talk about expanding our relationships with merchants that are already directly integrated with Catapult First. At a high level, we are looking for more data-driven ways to drive business for our merchants. Some of the opportunities we are exploring include optimizing our offer pages and highlighting the lowest cost payoff options to our consumers. As we continue to build an even better understanding of what consumers are interested in, we believe we are able to leverage special events, targeted advertising, and new promotional strategies to drive on. Although we are testing and learning with these opportunities, we are seeing them gain early traction with our largest merchant, Playfair. Take rates, conversion, customer flow, and close rates remain healthy. And recently, Wayfair has begun to streamline their lending process and partners, and Catapult has emerged as a preferred partner for this important merchant. We believe that this ongoing strong performance with Wayfair demonstrates the value that we can bring to merchants. We're also working to add new merchants to our direct integration pipeline. With direct integrations, we have shifted our go-to-market efforts to larger enterprise merchants that have a robust install base of customers where we can keep our customer acquisition cost low. In addition, we want to partner with large retailers that will help Catapult diversify products consumers can shop for using our unique lease-to-own model. We believe, over time, a more diverse offering will be a driver of consumer engagement, turning our platform into a true shopping destination. During the second quarter, we launched and signed contracts for new direct integrations with merchants spanning a variety of retail categories, including our newest, Casper, a leading omnichannel mattress company. The integration with Casper will be both online and an in-store integration. It's important to note that while we certainly expect direct integrations to remain an important driver for us, it's not our only path of profitably scaling our business. We are also moving to diversify our revenue stream with other channel drivers. Let's start with a quick update on one of our newer growth drivers, Catapult Pay. As a reminder, Catapult Pay is a feature in our app. It's a virtual one-time card that consumers can use for shopping at online stores in the U.S. Each time a customer uses Catapult Pay, we create a unique card number that can be used at the store's checkout. We believe our Catapult Pay feature will become a powerful tool for both merchants and consumers. For merchants, it helps extend their customer base with a new cohort of engaged and loyal shoppers who previously did not have the purchasing power to shop with them. This translates into incremental sales and lower customer acquisition costs for our merchants. For consumers, it gives them the freedom to easily shop for durable goods with a variety of key retailers, putting purchasing power for the items they need within reach at fair and transparent terms. We believe both the merchant and the customers will benefit from this easy-to-use technology. So far, we have a growing list of merchants on Catapult Pay, including Home Depot, Amazon, Wayfair, Best Buy, Nestor, HP, Ikea, and Lull. We are pleased with the momentum we've been able to build for Catapult Pay, which was launched just last year. We're also exploring opportunities to leverage our data, proprietary technology, and industry know-how in new ways to drive growth and address the emerging needs of our merchants. Over the long term, we expect our offerings to include a diverse set of products that can address specific merchant needs, meet customers wherever they are shopping, and drive growth for Catapult. The second pillar is focused on consumers, bringing new consumers to our network and broadening our relationships with those who already know Catapult. Let's start with our efforts in marketing and consumer engagement. We are taking an increasingly data-driven approach to both and are laying the foundation for new and more targeted marketing programs that leverage data science. For example, we are adopting a new marketing platform that we believe will enhance our customer target effort, allowing us to have more seamless and dynamic conversations with customers across email, SMS, and in-app push notifications. we believe we'll be able to do a better job of putting the right content in front of the right customer at the right time. This platform will allow us to be more responsive to consumer behavior and quickly take action based on how customers are engaging with Catapult. We are currently launching phase one of this program, email, and over the next 12 months, we expect to expand to a full suite of communication tools that will allow us to take our conversation with consumers to the next level. We believe these tools will allow us to better address the full spectrum of lifecycle marketing opportunities, from building awareness to consideration to purchase and repeat purchase. These strategic marketing investments will, first, allow us to stimulate consumer demand with more targeted efforts, Second, use our interactions with consumers to inform our customer segmentation data, which will allow us to create a better platform experience and drive customer engagement. And finally, leverage our engagement data to help drive home the value proposition we offer our merchants. These efforts will encourage those current direct merchants to engage in joint marketing campaigns and for those merchants not yet on direct integration to see the value of a partnership with us. Next, let's talk about how we're driving customer repeat rates. Repeat rate is defined as the percentage of origination for existing customers in any given quarter. With our mobile app featuring Catapult Pay, we've opened the door for our customers to access the products they need from high-quality merchants in a simple and easy way. This quarter, we continue to see strong repeat customer rates. In fact, approximately 51% of our customers are repeat customers. Repeat usage is a differentiator for Catapult and is powered by our focus on identifying consumer needs and driving high customer satisfaction. We believe our AI-powered technology, which allows us to quickly determine what goods are leaseable, is a key ingredient in our customer experience and driver of repeat purchases. If you just think about Amazon and Home Depot, they offer a lot of goods that we can't lease. Because of our technology, customers are able to determine up front what is leaseable and what is not. In addition, being transparent with consumers about pricing and online costs is a critical part of our value proposition. These characteristics, coupled with the fact that we don't charge any hidden fees and we have quickly been able to add more durable goods categories by bringing on larger retailers, creates a really great customer experience. will continue to look at opportunities to enhance our offering for consumers and believe that in doing so we can drive lifetime value of our loyal and engaged customers even higher over time finally our third pillar is really the foundation of which our business fits our innovative technology one of our core strengths is how adaptable and flexible our technology is the ease of use and workflow simplicity allows us to quickly address key merchant and consumer needs. From our user experiences, which we believe are best in class, to the speed at which we can deliver underwriting decisions, to our integration flows that allow us to launch more quickly with merchants, we believe our technology sets us apart. During the second quarter, we continue to see the benefits from the launch of Catapult Pay and our leading edge AI capabilities allowed us to continue to add large retailers to our app. Both of these are a testament to the strength of our technology team here at Catapult. Our tech strength is also accelerating our A-B testing capabilities. This will allow us to launch updates to our app and website experience that we believe resonate even more deeply with our consumers more quickly. For example, we are using A-B testing to test and learn the risk-based pricing model. In addition, we are leveraging our Agile technology platform to support our new targeted marketing programs and other B2C efforts. We've made a lot of progress during the first half of the year, and we remain focused on delivering the value to all our stakeholders. Now I'll turn the call over to Nancy so she can provide a review of our financial performance during the second quarter of 2023. Nancy?